The Green Book
Current Economic Trends
Overview
While the Korean economy has continued to pick up with improving employment, indicators
showing domestic demand have slowed down due to rising oil prices and the outbreak of
foot-and-mouth disease, and prices have stayed on an upward track.
Mining and manufacturing production fell 2.3 percent month-on-month in February due to
the Lunar New Year holiday, without the effect of which the index would have continued a
usual increase. Service output lost 3.4 percent from the previous month with the outbreak of
food-and-month disease and unusual cold spells, both of which disturbed outdoor activities.
In February retail sales declined 6.1 percent month-on-month, as rising oil prices shrank
consumer sentiment, and after a surge of sales due to Lunar New Year Holiday demand in
the previous month.
Facilities investment dropped 8.4 percent month-on-month in February, while the manufacturing
operation ratio remained high, which would lead to high investment demand. Construction
investment decreased month-on-month for two months in a row, down 8.5 percent.
February’s economic composite indices posted month-on-month decreases of 0.2 points in
the coincident index and 0.6 percentage points in the leading index, as indicators for real
economy, finance, economic sentiment all went down due to the Lunar New Year holiday
and growing external uncertainties.
Although imports soared due to rising oil prices, a trade surplus in March expanded to
US$3.1 billion from the previous month’s US$2.5 billion, as the recovering global economy
supported exports.
Employment in February continued to improve, adding 469,000 jobs, with agricultural,
forestry & fishery industries recovering from the outbreak of foot-and-mouth disease and
helped by job generation in both manufacturing and services sectors.
The consumer price, despite drops in agricultural, livestock & fishery product prices, rose 4.7
percent in March, due to petroleum and manufactured products, whose prices increased in line
with rising international oil and commodities prices. Core consumer prices accelerated a rise
from 3.1 percent in the previous month to 3.3 percent, affected by increasing service charges.
In March, although the earthquake in Japan stirred financial markets in the beginning, stock
prices rose and foreign exchange rates fell, as investment sentiment recovered and foreign
capital flowed in.
Both home prices and rent posted a faster increase than the previous month in March, while
those in the Seoul metropolitan area slowed down with a moving season nearing an end.
To sum up, although the global economy has recovered at a faster pace, there are growing
uncertainties such as rising oil prices due to political unrest in the Middle East, worries over
Japan’s radiation leak, and the European fiscal crisis.
The Korean government will closely watch external changes and flexibly respond to them, so
that the Korean economy can stand in the way of solid recovery with employment steadily
improving and inflation stabilizing. On the other hand, to curb inflation expectations which
lead to price instability, it will swiftly respond to changes that could affect prices, such as an
international oil price rise, while stepping up efforts to enable the economy to deal with
external changes, for example, oil prices staying high for an extended period.
Economic Bulletin

3

1. Global economy
Growth is continuing in major countries such as the US and China but uncertainties are
growing in the global economy, along with unease regarding the effects of Japan’s
earthquake as well as rising oil prices affected by political instability in the Middle East and
North Africa and resurfacing European fiscal crisis.

US

US economic growth in the fourth quarter of 2010 has been revised upward from 2.8 percent
(preliminary, annualized q-o-q) to 3.1 percent (final).
In February, industrial production slowed down to 0.0 percent compared with the previous
month and the ISM manufacturing index slightly declined, while retail sales expanded by
1.0 percent.
ISM manufacturing index (base=50)
55.3 (Sep 2010)

56.9 (Oct)

58.2 (Nov)

58.5 (Dec)

60.8 (Jan 2011)

61.4 (Feb)

61.2 (Mar)

In February both new and existing home sales dropped 16.9 percent and 9.6 percent monthon-month, respectively, and in January the S&P/Case-Shiller Home Price Index fell for the
seventh consecutive month.
Unemployment declined to 8.8 percent in March, a drop of 0.1 percentage point month-onmonth, with the labor market slowly improving thanks to increasing non-farm payrolls.
On March 15, the Federal Open Market Committee estimated that the economy was making
a solid recovery and the employment market was gradually improving. The committee also
reiterated its view that the US$600 billion QE2 program, the Fed’s second round of
quantitative easing, should be carried out as planned.
(Percentage change from previous period)
20101

China’s industrial production and consumption remained strong. China, however, faced
continued inflationary pressure due to increasing grain and raw material prices as well as
higher demand. The country’s trade balance shifted from a surplus of US$6.5 billion in
January to a deficit of US$7.3 billion in February with decreasing exports during the Lunar
New Year holiday and surging raw material imports due to a rise in international
commodities prices. Prices remained high, while liquidity growth slowed down as a result of
the key interest rate and banks’ reserve requirement ratio hikes.
M2 growth (%)
19.0 (Sep 2010)

19.3 (Oct)

19.5 (Nov)

19.7 (Dec)

17.2 (Jan 2011)

15.7 (Feb)

(Percentage change from same period in previous year)
Annual

Q4

Annual

Q1

20101
Q2

Q3

Q4

9.1

10.7

10.3

11.9

10.3

9.6

9.8

Fixed asset investment (accumulated)

30.5

30.5

24.5

26.4

25.5

24.5

Retail sales

15.5

16.9

18.4

17.9

18.5

18.4

Industrial production

11.0

18.0

15.7

19.6

16.0

Exports
Consumer prices

-16.0

0.2

31.3

28.7

-0.7

0.7

3.3

Producer prices

-5.4

-2.1

5.5

2009
Real GDP

1. Preliminary

20111
Feb
Jan
-

-

24.5

-

24.9

18.8

19.9

11.6

13.5

13.3

-

14.9

40.9

32.5

25.2

37.7

2.4

2.2

2.9

3.5

4.7

4.9

4.9

5.2

6.8

4.5

5.7

6.6

7.2

Source: China National Bureau of Statistics

Japan

Uncertainties regarding the Japanese economy significantly increased as a result of the March
11 earthquake, while industrial production and exports decelerated an increase. Japan’s
Cabinet Office said on March 23 that the economy had been affected by the earthquake and its
power to pick up had been weakening.
(Percentage change from previous period)
Annual

Eurozone’s economic recovery has continued with Germany and other major countries
leading the way despite fresh concerns over fiscal crises in countries such as Portugal. The
EU summit on Mach 24-25 failed to agree on steps to raise the ceiling for loans from the
European Financial Stability Facility (EFSF) from 250 billion euros to 440 billion.
(Percentage change from previous period)
2009

In February, retail sales fell 6.1 percent month-on-month and 0.8 percent year-on-year with
non-durable and semi-durable goods leading the trend, following a surge of sales due to
Lunar New Year holiday demand in the previous month and as consumer sentiment dipped
affected by high oil prices and outbreaks of foot-and-mouth disease. On a month-on-month
basis, sales of durable, semi-durable and non-durable goods declined 2.2 percent, 8.2
percent, and 7.7 percent, respectively. On a year-on-year basis, both durable goods sales
and semi-durable goods sales expanded 9.0 percent and 2.3 percent, respectively, whereas
those of non-durable ones declined due to higher prices of food and oil products.
(Percentage change from same period in previous year)
2009

Sales inched up 0.2 percent at convenience stores, which are not affected by holiday
demand, but fell 9.0 percent at department stores and 15.7 percent at large discounters, the
decline of which came after a sales increase due to Lunar New Year holiday demand. On a
year-on-year basis, sales grew by 10.0% at convenience stores and 3.1% at department
stores, but slipped by 10.8% at large discounters and 13.6% at supermarkets.
(Percentage change from same period in previous year)
20111

Consumer goods sales in March, despite factors interfering in consumer sentiment such as
the earthquake in Japan and rising food and energy product prices, is projected to increase,
given a rise in household income and high estimates of advanced indicators.
Also, amid a continued rise in wages, the number of workers hired has grown, providing a
boost to real purchasing power.
Household income (y-o-y, %)
4.9 (Q4 2009)

7.4 (Q1, 2010)

7.6 (Q2)

6.1 (Q3)

2.4 (Q4)

Employment (y-o-y, thousand)
249 (Sep 2010)

316 (Oct)

303 (Nov)

455 (Dec)

331 (Jan 2011)

469 (Feb)

Sales at department stores and large discounters accelerated compared with February,
when they dropped considerably following a sales surge due to Lunar New Year holiday
demand, while domestic credit card spending and imports of consumer goods steadily grew.
However, gasoline sales slowed down due to high oil prices.
Value of credit card use (y-o-y, %)
19.5 (Oct 2010)

With continuing uncertainties at home and abroad, consumer sentiment is declining, which
would lead to a slowdown in consumption to some extent. The sentiment fell below the
benchmark of 100 for the first time since May 2009 due to the earthquake and radiation leak
in Japan as well as rising food and energy prices.
Consumer Sentiment Index (CSI, base=100)
108 (Oct 2010)

3. Facility investment
Facility investment (preliminary GDP) in the fourth quarter of 2010 posted a quarter-onquarter decrease of 1.0 percent and a year-on-year gain of 15.9 percent.
(Percentage change from same period in previous year)
2008

Facility investment in February fell 8.4 percent month-on-month due to decreased
investment in machinery, but rose 1.6 percent year-on-year thanks to increased investment
in transportation equipment. Facility investment is projected to decrease, given a slowdown
in leading indicators, in particular machinery imports, and bleak outlook for corporate
investment amid growing external uncertainties. Still, the trend needs to be watched since
there are positive signs such as increasing domestic machinery orders and exports.
(Percentage change from same period in previous year)

1. Preliminary
2. National accounts
3. Percentage change from previous period
Source: The Bank of Korea

The value of construction completion in February dropped 8.5 percent month-on-month and
19.2 percent year-on-year, as both building construction and civil engineering works declined.
(Percentage change from same period in previous year)

Construction completed(constant value)
(Seasonally adjusted)

- Civil engineering works
Construction orders (current value)

Annual1

Q1

Q2

Q3

Q41

Dec1

Jan1

Feb1

-8.1

1.6

-3.3

3.4

-4.3

-6.8

-4.3

-0.1

-11.0

-19.2

-

-

-

2.6

-3.1

-4.3

-1.6

8.7

-8.8

-8.5

-10.3

-6.4

-7.1

1.5

-7.7

-12.3

-8.5

-3.8

-13.6

-21.8

-4.0

16.1

2.2

6.0

0.6

1.9

1.2

4.2

-7.6

-15.7

-7.6

5.0

-18.7

-1.6

-6.7

-3.6

-40.2

-22.5

-33.9

-16.7

-

-

-

-31.4

0.2

-1.4

-22.9

15.3

-11.3

-2.6

-15.4

-14.2

-9.9

8.3

55.3

-1.3

-46.4

-48.5

-46.8

-14.6

13.5

44.3

-29.5

-12.4

-49.7

-7.0

-29.9

29.2

-1.1

-19.3

-20.1

-12.9

19.3

12.1

47.4

-14.3

18.1

15.3

59.5

-23.1

2

- Building construction
- Civil engineering works
Building permit area

It is unlikely that construction investment will rebound soon considering poor leading
indicators, including construction orders and building permit area and contracted
investment sentiment of construction companies.

2010

Business survey indices (base=100) for
construction projections
Source: The Construction and Economy Research Institute of Korea

5. Exports and imports
Exports in March increased 30.3 percent (preliminary) year-on-year to US$48.60 billion.
Despite external uncertainties caused by Japan’s earthquake and the political unrest in the
Middle East, exports continued to be solid, led by petroleum products (up 87.5%), vessels
(up 70.0 %), steel (up 33.2%), and automobiles (up 24.4%).
It was the second consecutive month that average daily exports posted more than two billion
dollars, registering US$2.03 billion, following February, when the index hit a record high.
By regional category, exports to the ASEAN countries (up 39.5%), EU (up 19.6%), China (up
18.6%) and the US (up 14.9%) increased along with those to Japan (up 64.3%).
(US$ billion)
2009

2010

2011

Annual

Annual

Q1

Q2

Q3

Q4

Jan

Feb

Mar1

365.53

466.38

101.08

120.24

116.32

128.75

44.60

38.61

48.60

-13.9

28.3

35.8

33.1

22.7

23.8

45.1

16.9

30.3

1.30

1.70

1.51

1.76

1.72

1.79

1.94

2.03

2.03

323.08

425.21

98.16

105.63

105.70

115.73

41.76

36.15

45.50

(y-o-y, %)

-25.8

31.6

37.4

42.8

24.6

24.6

32.4

16.4

27.9

Average daily imports

13.16

1.46

0.47

1.54

1.57

1.61

1.82

1.90

1.90

Exports
(y-o-y, %)
Average daily exports
Imports

1. Preliminary
Source: Korea Customs Service

Imports in March increased 27.9 percent (preliminary) year-on-year to US$45.50 billion.
The imports of raw materials (up 38.0%) and consumer goods (up 28.6%) soared in line with
rising international commodity prices and recovering domestic demand, while those of
capital goods (up 10.4%) also posted a double-digit increase.
The current account balance in March posted a surplus of US$3.00billion (preliminary),
accelerating from the previous month.
(US$ billion)
2009

6. Mining and manufacturing production
Mining and manufacturing production in February, while rising 9.1 percent year-on-year, fell
2.3 percent month-on-month, as the Lunar New Year holiday and labor-management
disputes interrupted operation.
By business category, semiconductors and parts (up 6.3%) and audio-visual communications
equipment (up 1.8%) increased month-on-month, while automobiles (down 9.4%) and
clothing and furs (down 22.2%) went down.
Shipments posted a month-on-month loss of 4.4 percent while inventories gained 2.7
percent, which pushed up the manufacturing inventory-shipment ratio for the first time in
four months.
By business category, the shipments of refined petroleum (up 0.9%) and audio-visual
communications equipment (up 0.1%) increased month-on-month, while those of
automobiles (down 9.9%) and machinery (down 6.0%) declined. The inventories of
semiconductors and parts (up 13.9%) and computers (up 20.4%) climbed month-on-month,
while those of automobiles (down 3.8%) and primary metals (down 1.9%) fell.
The average operation ratio of the manufacturing sector fell 2.2 percentage points to 82.5
percent, yet hovering above the 10 year average of 78.3 percent between 2000 and 2010 by
4.2 percentage points.
(Percentage change from same period in previous year)
2009
Annual
Production (q-o-q, m-o-m)

Mining and manufacturing production is expected to stay on an upward track month-onmonth with exports steadily growing and operation returning to normal after the Lunar New
Year holiday, but may slow down temporarily if Japan’s recovery from the earthquake takes
long, and the slow recovery interrupts supply of parts.
Exports (y-o-y, %)
27.6 (Oct 2010)

8. Employment
The number of workers on payroll in February increased by 469,000 from a year earlier,
while the employment rate (seasonally adjusted) rose by 0.5 percentage points year-on-year
to 57.1 percent.
By industry, employment in manufacturing (up 262,000), services (up 227,000) and construction
(up 27,000) climbed while that in agriculture, forestry & fishery (down 51,000) declined.
Hiring in manufacturing maintained a high growth rate helped by increasing production in
mining and manufacturing.
The service sector continued to expand employment with increasing health & welfare (up
203,000), business assistance (up 105,000) and professional, scientific & technical services
(up 63,000).
By status of workers, the number of regular workers (up 604,000) and daily workers (up
27,000) increased whereas temporary workers (down 57,000) decreased. Non-wage workers
(down 105,000) including self-employed workers (down 130,000) continued to decline.

The number of unemployed persons in February decreased by 74,000 year-on-year to
1,095,000.The unemployment rate (seasonally adjusted) dropped by 0.4 percentage points
to 4.5 percent.
On a month-on-month basis, the number of unemployed persons in February increased by 108,000
to 996,000 (seasonally adjusted) as people who applied for government-run job programs but
were not selected were counted as unemployed persons.
The youth unemployment rate fell 1.5 percentage points year-on-year to 8.5 percent.

2009

2010

Annual

Q1

Q2

Q3

Q4

Number of unemployed (thousand)

889

908

943

886

817

Unemployment growth (y-o-y, thousand)

119

107

176

134

60

Annual

Feb

Q1

920 1,169 1,130
31

244

2011

Q2

Q3

Q4

Jan

868

873

808

918 1,095

-75

-13

-10

-298

222

Feb

-74

- Male

80

83

116

95

25

-7

101

83

-47

-48

-16 -160

-63

- Female

40

24

60

39

36

38

143

139

-29

35

6 -139

-11

Unemployment rate (%)

3.6

3.8

3.8

3.6

3.3

3.7

4.9

4.7

3.5

3.5

3.3

3.8

4.5

(Seasonally adjusted)

3.6

3.5

3.9

3.7

3.5

3.7

4.4

4.3

3.5

3.6

3.4

3.6

4.0

- 15 to 29

8.1

8.6

8.0

8.1

7.6

8.0

10.0

9.5

7.7

7.6

7.1

8.5

8.5

- 30 to 39

3.6

3.7

3.9

3.5

3.3

3.5

4.0

3.9

3.6

3.5

3.2

3.6

4.2

- 40 to 49

2.4

2.5

2.6

2.4

2.3

2.5

3.0

2.9

2.3

2.5

2.2

2.2

2.7

- 50 to 59

2.5

2.4

2.7

2.5

2.2

2.5

3.2

3.2

2.1

2.3

2.3

2.5

2.8

- 60 or more

1.6

1.6

1.9

1.6

1.5

2.8

6.0

5.8

2.1

2.0

1.9

3.3

6.5

Source: Statistics Korea

The economically inactive population in February was up 63,000 from a year earlier to
16,450,000. Meanwhile, the labor force participation rate (seasonally adjusted) rose 0.3
percentage points year-on-year to 59.8 percent.
The number of workers quitting jobs due to rest, time-off and leisure (up 244,000) and
housework (up 85,000) increased, while those who quit jobs due to old age (down 121,000),
childcare (down 44,000) and education (down 40,000) decreased.

9. Financial market
9.1 Stock market
Despite concerns over a slowdown in the global economic recovery, the Korean stock market
gained in March helped by inflows of funds from foreign investors.
Stock market volatility accelerated in early-March due to external risk factors such as Japan’s
devastating earthquake and the consequent nuclear power plant accidents, continuing
political upheaval in the Middle East and resurgent debt crisis in Southern Europe.
After mid-month, however, the KOSPI rallied led by increasing demand on the back of eased
external risk factors, the coordinated G7 intervention to stabilize the Japanese yen,
expectations for the upcoming earnings season and continuing inflows of foreign funds.
Foreign investors shifted to the net-buying position on Korean shares to purchase 1.1 trillion
won in March helped by increasing risk tolerance level, recovering investment sentiment and
high expectations for earnings season.
(End-period, point, trillion won)
KOSPI

KOSDAQ

Feb 2011

Mar 2011

Change1

Feb 2011

Mar 2011

Change1

Stock price index

1,939.3

2,106.7

+167.4 (+8.6%)

504.5

525.4

+21.0 (+4.2%)

Market capitalization

1,086.2

1,181.4

+95.2 (+8.8%)

99.0

103.9

+4.9 (+5.0%)

Average daily trade value

6.2

6.8

+0.6 (+9.6%)

2.1

2.1

+0.02 (+1.0%)

Foreign stock ownership

32.5

32.5

-0.01 (-0.03%)

10.4

9.4

-1.0 (-10.0%)

1. Change from the end of the previous month

9.2 Exchange rate
The won/dollar exchange rate in February decreased 32.0 won from 1,128.7 won at the end of
February to wrap up the month at 1,096.7 won. Due to Japan’s earthquake, a possible leakage
of radioactive material from the earthquake-damaged Fukushima nuclear power plant and
continuing tumult in the Middle East, the won/dollar exchange rate rose to 1135.3 won.
The won/dollar exchange rate, however, fell as international financial markets stabilized
helped by G7’s coordinated intervention in the currency market on March 18.
The won/100 yen exchange rate was down 56.6 won month-on-month as the yen weakened
after the coordinated G7 intervention.
(End-period)
2007

2008

2009

2010

2011

Dec

Dec

Dec

Dec

Feb

Mar

Change1

Won/Dollar

936.1

1,259.5

1,164.5

1,134.8

1,134.8

1,096.7

3.5

Won/100 Yen

828.6

1,396.8

1,264.5

1,393.6

1,382.2

1,325.6

5.1

1. Appreciation from the end of the previous year (%); the exchange rate is based on the closing price at 3:00 p.m., local time.

26

April 2011

9-1

Stock prices

9-2

Foreign exchange rate (month-end)

9-3

Recent foreign exchange rate

Economic Bulletin

27

9.3 Bond market
Treasury bond yields dipped in March due to rising demand for safe assets amid heightened
external risks.
Despite Bank of Korea’s key interest rate hike and worries over inflation, the yields fell due
to the “flight to safety assets” trend affected by the Japanese earthquake and turmoil in the
Middle East.
(End-period)
2006

2007

2008

2009

2010

Dec

Dec

Dec

Dec

Dec

Jan

Feb

2011
Mar

Change1

Call rate (1 day)

4.60

5.02

3.02

2.01

2.51

2.75

2.76

2.99

+23

CD (91 days)

4.86

5.82

3.93

2.88

2.80

3.05

3.17

3.39

+22

Treasury bonds (3 yrs)

4.92

5.74

3.41

4.44

3.38

3.96

3.84

3.73

-11

Corporate bonds (3 yrs)

5.29

6.77

7.72

5.56

4.27

4.75

4.63

4.51

-12

Treasury bonds (5 yrs)

5.00

5.78

3.77

4.98

4.08

4.41

4.28

4.11

-17

1. Basis point, changes in March 2011 from the previous month

9.4 Money supply & money market
The M2 (monthly average) in January 2011 expanded 6.5 percent from a year earlier
excluding cash management accounts (CMAs), which were included in M2 since July 2009.
The month-on-month M2 growth slowed down due to the government’s early spending cuts,
outflows of foreign portfolio investments, equity investments by asset management
companies (AMCs) and beleaguered savings banks.
(Percentage change from same period in previous year, average)
2008
Annual Annual
M1

In February 2011, bank deposits increased significantly while asset management company
(AMC) deposits accelerated the decrease.
Bank deposits greatly accelerated due to the large increase in time deposits, led by higher
deposit rates and the inflows of funds exiting savings banks and those of local government funds.
Despite a decrease in redemptions, asset management company (AMC) deposits plunged
due to net outflows of Treasury funds and concerns over an interest rate hike.
(Monthly change, end-period, trillion won)
2009
Annual

10. Balance of payments
Korea’s current account surplus (preliminary) in February expanded from the previous
month’s US$150 million to US$1.18 billion.
Despite rising international commodity prices, the goods account surplus maintained a twodigit growth to post US$1.58 billion, helped by solid exports.
The service account deficit considerably narrowed to US$570 million from the previous
month’s deficit of US$1.64 billion on the back of decreased overseas travel and business
service payments.
The primary income account decelerated the surplus to US$540 million from the previous
month’s deficit of US$700 million due to increasing dividend payments. Meanwhile, the
secondary income account deficit narrowed to US$380 million from US$470 million a
month earlier.
(US$ billion)
2009

The direct investment account slightly decelerated the outflow to US$1.64 billion from the
previous month’s outflow of US$1.73 billion with increasing inflows of foreign direct
investment.
The portfolio investment account shifted to an outflow of US$3 billion from the previous
month’s inflow of US$900 million as foreign investors turned to a net-selling position of
Korean bonds due to concerns over a possible spread of the Middle East unrest.
The financial derivatives account turned to a deficit of US$360 million from the previous
month’s surplus of US$570 million.
The other investment account expanded the net inflow to US$4.86 billion from the previous
month’s US$1.77 billion as domestic banks retrieved their short-term loans.
The current account surplus in March is expected to expand from the previous month driven
by strong exports.

30

April 2011

10-1 Current account balance
Source: The Bank of Korea (balance of payments trend)

11. Prices and international commodity prices
11.1 Prices
Consumer prices in March rose 4.7 percent year-on-year and 0.5 percent month-on-month.
Although prices of agricultural, livestock & fishery products fell compared with the previous
month, high oil product prices and a price hike in personal services led to an increase in
consumer prices.
Core consumer prices, which exclude oil and agricultural products, rose 3.3 percent year-onyear and 0.3 percent month-on-month in February due to a low base effect and an increase
in personal service charges. Consumer prices for basic necessities, a barometer of perceived
consumer prices, were up 4.9 percent compared with the same month of the previous year.

Prices of industrial products such as processed food and durable goods rose 1.3 percent
month-on-month, as oil product prices spiked due to an increase in the prices of
international oil and commodities.
Public utility charges remained stabilized in general, falling 0.8 percent month-on-month,
partly due to low high school tuition fees (down 17.3%, m-o-m). Personal service charges
increased 0.5 percent month-on-month, in particular the cost of dining out.

11.2. International oil and commodity prices
International oil and domestic oil product prices rose in March.
International oil prices (Dubai crude) continued to rise due to political turmoil in the Middle
East, with the earthquake in Japan adding volatility to prices.
(US$/barrel, period average)
2008

Domestic oil product prices surged as a result of high international oil prices.
Won/dollar exchange rate (average)
1,148 (Dec 2010)

1,120 (Jan 2011)

1,118 (Feb)

1,122 (Mar)
(Won/liter, period average)

2008
Annual

2009
Annual

Sep

2010
Oct

Annual

Nov

Dec

Jan

2011
Feb

Mar

Gasoline prices

1,692

1,601

Diesel prices

1,614

1,397

1,710

1,700

1,700

1,716

1,771

1,825

1,850

1,939

1,503

1,499

1,500

1,518

1,570

1,621

1,652

1,756

Source: Korea National Oil Corporation

International commodities were shown to be experiencing price adjustments in March, due
to concerns over low demand as a result of the earthquake in Japan. Rising inventories of
key commodities also contributed to the decline.
Non-ferrous metal prices fell, led by copper and nickel, as the earthquake quelled demand,
stocks of major items such as copper increased, and import demand from China decreased.
Copper inventories have been rising since last December, and China’s copper imports fell 36
percent month-on-month in February.
International grain prices decreased due to adjustments made from recent price surges, and
also due to expectations of rising inventories. In March, USDA announced that the world
grain stocks may increase from 426 million tons to 436 million tons.
Prices of non-ferrous metals and grain in Mar (m-o-m, %)
Aluminum (2.1), wheat (-11.0), raw sugar (-9.7), nickel (-5.1), zinc (-4.8), copper (-3.2), tin (-2.6), soybean (-2.4),
corn (-0.9)

12.2 Land market
Nationwide land prices in February rose for the fourth consecutive month (up 0.09%), but
were still 2.03 percent lower than the pre-crisis peak reached in October 2008. Land prices
were 0.23 percent lower compared with the previous year, with the increase pace shown to
be decelerating evenly nationwide.
Land prices in the Seoul metropolitan area (up 0.10%), Seoul (up 0.12%), Gyeonggi Province
(up 0.08%) and Incheon (up 0.06%) were all almost on par with prices of the previous
month.
Land price increases in Seoul metropolitan area (m-o-m, %)
0.01 (Nov 2010)

0.12 (Dec)

0.10 (Jan 2011)

0.10 (Feb)

Land prices in areas excluding the Seoul metropolitan area rose 0.07 percent month-onmonth in February, continuing the upward trend from October 2010.
Land price increases in areas excluding Seoul metropolitan area (m-o-m, %)
0.06 (Nov 2010)

0.10 (Dec)

0.07 (Jan 2011)

0.07 (Feb)

Land prices by region
2007

(Percentage change from previous period)
2008

2009

Annual Annual
Nationwide

3.88

-0.31

2010

2011

Q4

Annual

Q1

Q2

Q3

Q4

Annual

Q1

Q2

Q3

Q4

Jan

Feb

-4.09

0.96

-1.20

0.35

0.88

0.94

1.05

0.70

0.29

-0.05

0.11

0.09

0.09

Seoul

5.88

-1.00

-6.34

1.40

-1.38

0.68

1.30

0.81

0.53

0.72

0.02

-0.25

0.39

0.12

0.12

Gyeonggi

4.22

-0.26

-4.29

1.22

-1.62

0.37

1.13

1.36

1.49

0.96

0.53

-0.08

0.07

0.08

0.08

Incheon

4.86

1.37

-3.57

1.99

-1.39

0.53

1.16

1.70

1.43

1.08

0.43

-0.10

0.02

0.06

0.06

Source: Korea Land & Housing Corporation

Nationwide land transactions in February recorded 176,000 land lots, down 7.6 percent from
the previous month. On a year-on-year basis, however, the transactions were up 5.1 percent.
Land transactions were 2.6% less than the five-year February average of 181,000 land lots.
Month-on-month land transactions decreased slightly in areas such as Seoul (down 5.8%,
m-o-m), Busan (down 9.7%, m-o-m), Gwangju (down 4.6%, m-o-m), and Ulsan (down
12.4%, m-o-m).

13. Composite indices of business cycle indicators
The cyclical indicator of the coincident composite index fell for the first time in three months
in February (down 0.2p, m-o-m).
Among the components of the coincident composite index, the mining & manufacturing
production index, manufacturing operation ratio index, domestic shipment index and number
of non-farm payroll employment rose, while the rest decreased from the previous month.
Components of coincident composite index in February (m-o-m)
Mining & manufacturing production index (1.7%), manufacturing operation ratio index (0.8%), domestic
shipment index (0.5%), number of non-farm payroll employment (0.3%), value of construction completion
(-3.0%), volume of imports (-1.3%), wholesale & retail sales index (-0.5%) service activity index (-0.1%)

The year-on-year leading composite index in February fell 0.6 percentage points from the
previous month.
Among the components of the leading composite index, five components, including the value
of machinery orders received and indicator of inventory cycle, rose while others such as the
consumer expectations index and liquidity in the financial institutions fell month-on-month.
Components of the leading composite index in February (m-o-m)
Value of machinery orders received (2.6%), indicator of inventory cycle (2.1%p), ratio of job openings to job
seekers (1.2%p), composite stock price index (0.9%), spreads between long & short term interest rates
(0.1%p), consumer expectations index (-4.0), value of capital goods imports (-2.6%), value of construction
orders received (-1.0%), net terms of trade index (-1.0%), liquidity in the financial institutions (-0.8%)

The Korean government unveiled new measures to boost home transactions on March 22.
As part of the measures, the government will lower the real estate acquisition tax rate by half
and seek to remove a cap on the price of newly built houses. Meanwhile, restrictions on
debt-to-income (DTI) ratio were reintroduced as scheduled at the beginning of April.

Original measures
The Korean government announced on August 29, 2010 a temporary relaxation of DTI ratio
regulations for mortgage loans in order to stimulate the depressed housing market. The
temporary easing of the DTI ratio limit was applicable to those who do not own houses, and
when they buy houses worth less than 900 million won in a non-speculative area, along with
mortgage facilities of up to 200 million won available to first time home buyers. In addition,
people who have multiple houses would have been able to avoid the heavy transfer tax for
another two years from the end of 2010, and have benefited from the property acquisition
tax reduction for another year from the same date. The August 29 measures have helped
increase home transactions, although accompanied by rising household debt. To curb
increasing household debt and keep boosting home transactions, the government
announced another round of home transaction stimulus measures on March 22, 2011.
Apartment transaction volume in the Seoul metropolitan area (thousand)
9.0 (Sep 2010)

New measures
1) Reinstatement of the DTI rule
The Korean government decided to end the temporary easing of the DTI ratio as scheduled
at the end of March and the previously-imposed limit has been reinstated starting April. The
DTI ratio is 40 percent for speculative areas, 50 percent for non-speculative areas in Seoul,
and 60 percent for Incheon and Gyeonggi Province.
The March 22 DTI measure is designed to be complemented by preferential DTI ratios of up
to 15 percentage points more, if a mortgage is conditioned without a grace period and with
fixed-rate principal and interest installments. Credit ceilings of microloans to which the DTI
regulation does not apply, is raised from 50 million won to 100 million won. Mortgage loan
facilities for first time home buyers, scheduled to expire at the end of March, will be
maintained by the end of 2011. The loan facilities are available to households in which all
members do not own houses and whose household income is less than 40 million won a
year, when they purchase houses worth less than 600 million won and smaller than 85m2 in
a non-speculative area. Home buyers who fulfill these requirements will be able to use the
loan facilities to the amount of up to 200 million won at the annual interest rate of 5.2
percent.
2) Lowered home acquisition tax
The real estate acquisition tax is halved, and the new rate will be effective until the end of
2011. The acquisition tax on houses worth less than 900 million won is lowered from 2.0
percent to 1.0 percent, while houses worth more than 900 million won from 4.0 percent to
2.0 percent. In addition, individuals who own more than one house are subject to pay a
lower tax rate from 4.0 percent to 2.0 percent.
Meanwhile, the government decided to indemnify local governments against tax cut losses,
and the actual indemnity plans will be discussed in a task force team meeting.
3) No more price ceiling on new homes
To encourage private builders to supply more homes, the government is pursuing easing of
price ceiling on new homes as soon as possible. The related bill is pending approval in the
National Assembly.

Economic Bulletin

43

Economic
News Briefing

Korean economy grows 6.2% in 2010 (Preliminary)
Korea’s real gross domestic product (GDP) expanded by 6.2 percent in 2010 compared with
the previous year due to increased facilities investment, robust exports of goods & services
and rising private consumption.
On the production side, manufacturing surged 14.8 percent while construction edged down
by 0.1 percent. Services rose by 3.5 percent led by rapid growth of transport & storage
services, wholesale & retail trade and health & social work.
On the expenditure side, private consumption increased 4.1 percent as expenditures on
durable goods showed a strong upward trend and those on non-durable goods and semidurable goods also turned to an increase. Exports of goods & services grew by 14.5 percent,
with increased exports of semi-conductors, automobile and machinery. Imports of goods
and services also rose by 16.9 percent.
Real gross national income (GNI) in 2010 grew 5.5 percent and per capita GNI at current
prices increased to US$20,759 from US$17,193 a year earlier.
Meanwhile, the Monetary Policy Committee of the Bank of Korea decided on April 12 to keep
the key interest rate unchanged at 3.00 percent after having raised it by 25 basis points each
in January and March.

Korea revises its economic outlook for 2011
On April 13, the Bank of Korea kept its forecast of 4.5 percent growth for 2011 as originally
projected in December 2010. GDP growth is predicted to register 4.8 percent next year. The
central bank raised its consumer inflation projection for this year to 3.9 percent from a
previous estimate of 3.5 percent, while revising the core inflation outlook slightly up from 3.1
percent to 3.3 percent. For 2012, consumer price inflation is forecast at 3.4 percent and core
inflation at 3.6 percent.
Meanwhile, on April 11, the International Monetary Fund (IMF) assessed that the world
economic recovery has solidified but downside risks remain due to the differences in the
recovery pace. The Washington-based agency projected that the world economy will grow by
4.4 percent and 4.5 percent in 2011 and 2012, respectively. In advanced economies, growth
is projected at 2.4 percent in 2011 and 2.6 percent in 2012 while that in emerging economies
as a whole is expected to reach 6.5 percent in both 2011 and 2012. IMF’s growth forecast for
the Korean economy remained unchanged at 4.5 percent in 2011 and 4.2 percent in 2012.

Economic Bulletin

45

Inbound FDI in Q1 posts US$2,005 million
Foreign direct investment (FDI) into Korea recorded US$2,005 million in the first quarter of
2011, up 30.1 percent from US$1,541 million a year earlier. Despite overseas risk factors such
as political unrest in the Middle East and North Africa and a devastating earthquake in Japan,
Korea’s FDI maintained a strong growth.
FDI from almost all regions except the Middle East and the EU increased. In contrast to a
contraction last year, US direct investment soared 1,068 percent and investment by Japan
increased 40.1 percent year-on-year.
By industry, year-on-year FDI in the manufacturing and service sector increased 20.3 percent
and 45.7 percent, respectively. FDI in the service sector spiked due to a surge in investments
in business services and retail services.

(Notification basis, US$ million, %)
2009

1

2010

1

20111

Total

1,677

1,541

2,005

Changes2

-38.2

-8.2

30.1

1. First quarter of the year
2. Percentage change from the same period of the previous year

Korea’s year-end fiscal data for 2010
Korea had 261.2 trillion won of tax revenues in 2010, with the surplus rising to 7.8 trillion won
and annual expenditures reaching 248.7 trillion won. The revenues were 0.1 trillion won less
than those of 2009 but 5.8 trillion won more than the planned amount of 255.4 trillion won.
Korea had a fiscal deficit of 13.0 trillion won, down 1.1% compared to GDP, but a
consolidated surplus of 1.4% compared to GDP. Meanwhile, the national debt hit 373.8
trillion won, or 31.9% of GDP, posting an increase of 27.7 trillion won from the previous year
and a decrease of 20.8 trillion won from the 2010 budget. The national debt including the net
debts of local governments is estimated to reach 392.8 trillion won, or 33.5% of GDP, a 33.2
trillion won rise from the previous year.
As of the end of 2010, the government had 185.6 trillion won worth of credit, an increase of
6.2%, or 10.9 trillion won, compared to 2009. National assets recorded 315.1 trillion won, a
rise of 18.3 trillion won, or 6.2 percent from 2009, with the value of state-held securities
climbing by 10.8 trillion won and that of the government land shrinking by 0.4 trillion won.

46

April 2011

Korea’s financial regulator tightens rules for savings banks
On March 17, the Financial Services Commission (FSC) unveiled measures to tighten
supervision on savings banks. Acknowledging that many savings banks have been
vulnerable to improper practices of their largest shareholders, the FSC plans to toughen
controls on the major shareholders and hold them more accountable for the banks’ business
operations. For example, when the biggest shareholder has allegedly committed an illegal
act, the Financial Supervisory Service (FSS) will be able to launch an investigation, and if
found guilty of improper conduct, both the shareholder and the savings bank will be held
subject to fines.
Savings banks whose capital adequacy ratio is above 8 percent and non-performing ratio is
below 8 percent have been exempted from the lending cap applied to the rest of the savings
bank industry, which is 8 billion won per borrower. This preferential treatment, however, has
caused problems by allowing certain savings banks to engage in disproportionate
investment in high-risk assets and excessive business expansion. In order to boost the
financial health of savings banks, the FSC has decided to end this preferential treatment
while raising the lending cap from 8 billion won per borrower to 10 billion won.
In response to claims that investors suffer from lack of transparency in accounting and
contracts made based on incomplete information, the FSC will strengthen market disciplines
and limit the issuance of subordinated bonds. Finally, the FCS plans to tighten surveillance
over savings banks in risk of insolvency. The FSC will work closely with related government
agencies to seek civil and criminal charges against savings banks’ major shareholders and
management if they were to be found responsible for any business failure and misconduct.

National Assembly passes Macro-prudential Stability Law
On April 5, Korea’s National Assembly passed the Partial Amendment Law to the Foreign
Exchange Transactions Act. Previously, the Korean government proposed the Macro-prudential
Stability measures on December 19, 2010 in an effort to deal with a surge of capital inflows and
Korea’s exposure to global financial market turbulence.
The amendment shall come into force from August 1, 2011. Non-deposit foreign currency
liabilities at all commercial banks and state-run banks such as Korea Development Bank,
Export-Import Bank of Korea, Industrial Bank of Korea, National Agricultural Cooperative
Federation, National Federation of Fisheries Cooperative and Korea Finance Cooperation are
subject to the measures. Those banks will be charged 20 basis points on their foreign liabilities
that mature in less than a year, 10 basis points for 1-3 year liabilities, 5 basis points for 3-5 year
liabilities, and 2 basis points for more than 5 year liabilities.

Economic Bulletin

47

Korea’s self-sufficiency in key minerals rises to 27 percent
Korea’s self-sufficiency rate in key mineral resources rose in 2010 from a year earlier on
greater output from overseas mines owned by local companies, said the Ministry of
Knowledge Economy. According to the ministry, the rate for the six key minerals came to 27
percent of demand last year, up from 25.1 percent a year earlier. In addition, the selfsufficiency rate for rare earth elements reached 8.5 percent of demand in 2010, higher than
the 5.5 percent target for the year.
Local companies invested a record US$2.64 billion in overseas resources development
projects last year, up 157 percent from US$1.02 billion a year earlier. In terms of investment
return, local companies retrieved US$553 million through the sales of minerals produced, up
39 percent from US$397 million in 2009.
Meanwhile, Korea National Oil Corporation (KNOC) signed a US$1.55 billion deal with
Anadarko Petroleum Corporation to secure 23.67 percent of the stake in the Maverick Basin
assets in Texas. The shale oil assets in Texas hold the equivalent of 491 million barrels of oil
and are producing 28,000 barrels a day. In a separate deal, Korea acquired 95 percent of
Altius Holdings, which owns four oil blocks in Kazakhstan with reserves totaling 56.9 million
barrels. The two acquisitions may boost KNOC’s output by 16,500 barrels a day.

Korea plans KSP joint consultation with multilateral development banks
The Ministry of Strategy and Finance announced on March 29 that it has agreed to conduct
joint consultations with five multilateral development banks (MDBs) as part of its Knowledge
Sharing Program (KSP). The joint consulting with the MDBs - the World Bank (WB), Asian
Development Bank (ADB), Inter-American Development Bank (IDB), European Bank for
Reconstruction and Development (EBRD) and African Development Bank (AfDB) - expands
the existing bilateral KSP to include a third party.
The joint consultation system will help boost the effectiveness of KSP projects by combining
the MDBs’ specialization in their respective regions with Korea’s unique experience in
economic development. The KSP, which was established in 2004 to share Korea’s economic
development experience with the developing countries, has conducted about 200 consulting
projects in 22 countries.
Meanwhile, Korea spent US$ 1.17 billion on official development assistance (ODA) in 2010,
up 25.7 percent from the previous year. This is the second highest increase rate among DAC
member countries after Portugal, which posted a 31.5 percent increase last year.

48

April 2011

Korea to host Inter-American Development Bank annual meeting in 2015
Korea has been selected to host the 56th annual meeting of the Inter-American Development
Bank (IDB) in 2015, an opportunity that the government expects will boost economic
cooperation between Korea and Latin America. The Ministry of Strategy and Finance
announced on March 29 that the decision was made unanimously at the 52nd round of the
IDB annual meeting that ended on March 28 in Canada. The IDB was established in 1959 to
promote economic and social development in Latin America, and Korea has been a member
of the bank since March 2005.